Bets soar on whether Saudi Arabia will abandon dollar peg

Domestic fuels have been heavily subsidized, but Riyadh has been under pressure to bring its spending under control as its budget deficit in 2015 ballooned to Riyal 367 billion due to lower revenue from crude exports.

The world’s top oil exporter announced Monday a record budget deficit of $98 billion in 2015 and projected a shortfall of $87 billion next year.

“It’s very clear that Saudi Arabia will continue with its oil policy of defending its market share in 2016 as it prepared itself for low oil price environment”.

The comment by the head of the state oil company was in line with Saudi Arabia’s no-cut oil policy on output despite a sharp fall in global oil prices since mid-2014.

The budget “comes amid challenging worldwide and regional economic and financial conditions” including “very low oil prices”, the statement said.

Revenues next year are forecast at SR514 billion, down from SR608 billion in 2015, when oil revenues accounted for 73 percent of the total.

Non-oil revenues rose by 29 percent this year to $43.5 billion, contributing 27 percent to public revenues.

The price for high grade unleaded petrol now sells for 0.60 Riyals (Rs. 10.61) and the lower grade petrol sells for 0.45 Riyals (Rs. 7.96).

Second, it starts to introduce a credible medium-term fiscal consolidation strategy to address the oil price slump through revenue- and expenditure-side measures, the first round of which saw sweeping energy, water and electricity administered price changes.

“Saudi petchem producers have lost the cost advantage, and they can not pass on this cost in their prices to end-users because that is determined by market forces of demand and supply”, said Iyad Ghulam, analyst at NCB Capital.

It also intends to cut spending in 2016 to 840 billion riyals ($224 billion) from 975 billion riyals this year.

Saudi Arabia is even thinking about cutting the massive discount it gives its citizens on gasoline.

The kingdom withdrew more than $80 billion this year from the reserves, which stood at $732 billion at the end of 2014, and issued bonds worth around $20 billion.

According to Jadwa, the Saudi government is also expected to announce a National Transformation Programme (NTP) in January to outline further plans to boost non-oil income.